FX.co ★ 02.05.2024: Powel bruises USD, but DXY still trading higher. S&P 500, EUR/USD, and Brent crude oil

Federal Reserve Chairman Jerome Powell has dealt a blow to the world’s main currency with his dovish comments. At the same time, the Bank of Japan’s Governor, on the contrary, completely refused to comment on the recent actions of the regulator. Tokyo is sticking to its guns and continues to keep markets in the dark about its currency interventions.

Given the sharp strengthening of the Japanese yen, it can be assumed that the Japanese authorities have intervened in the currency market for the second time this week. The 160 yen per dollar acts as a kind of barrier that the currency pair should not go beyond. The dollar/yen pair plunged so quickly that it even touched 153.

Today the yen tried to trade lower in the intraday corridor between 154.1 and 156.2. However, the Japanese yen has been trapped under strong greenback’s pressure. Moreover, the large difference in interest rates between Japan and the US is sure to persist for some time.

The yen has already weakened more than 10% against the US dollar since the start of the year as the Bank of Japan encouraged carry traders to take action. While the yen remains the weakest currency in the US dollar basket, it is mostly bought to invest in higher-yielding peers.

The Deputy Minister of Finance promised on behalf of Japan’s government that reports on forex transactions would be disclosed at the end of next month. At the same time, Masato Kanda repeated that the authorities would take appropriate actions in the currency market when necessary. Therefore, the US dollar remained extremely volatile against the yen today. Although in pairs with most major currencies, the greenback incurred losses.

After yesterday's blow caused by the speech of the Fed Chairman, the US dollar not only broke through the support level of 106 points, but also immediately fell below 105.5. Today, its index consolidates in a narrow range of 105.6 to 105.8, but the indicator is still blinking green on its trading chart.

The policy decision unveiled by the rate-setting committee yesterday still contained hawkish notes. Yes, Federal Reserve policymakers kept interest rates steady between 5.25 and 5.50%.

Moreover, the Fed Chairman ruled out the possibility of a new rate hike. But at the same time, inflation in the US remains sticky. In recent months, there has been no significant progress in taming inflation at all. Thus, the regulator will need more time to see a sustainable decline of consumer prices towards the target 2%.

Market participants have drawn the conclusion that interest rates in the US will be kept at current high levels. As for their peak values, Jerome Powell made a common remark that much will depend on incoming data.

In recent weeks, economic data have been adding more questions than they provide answers. For example, yesterday's reports on employment in private business turned out to be unexpectedly stronger than forecasts. Besides, the manufacturing PMI also suddenly found itself again in the technical bearish zone below the threshold level of 50 points.

At the same time, price pressure in the manufacturing sector has increased sharply. Now the market’s attention is focused on the key monthly US employment report which is released on Friday. It will shed light on the strength of the US labor market and determine the future prospects for US interest rates.

The diversity of opinions and forecasts was reflected in sentiment on Wall Street. After all, since a rate hike in the US is out of the question, this should be a positive factor for stocks. However, by the end of the New York session on Wednesday, the S&P 500 index lost its earlier gains. The index opened the American session in the corridor between 5,013 and 5,096.

Curiously, even with such a dovish scenario the Federal Reserve, still remains the most hawkish regulator on a macroeconomic scale compared to other central banks of the G10 countries, especially in the eurozone.

Recent statements by ECB policymakers have often highlighted June as the deadline for the first rate cut. That is, Europe, as follows from the comments of financial policymakers, may begin lowering rates much earlier than the US.